ETLA Discussion Papers, The Research Institute of the Finnish Economy (ETLA) 825

Abstract:

This paper examines the economic effects of the opening of the former Soviet Union. The analysis carried out in the paper is two-fold. First we simulate the impact of the eastern enlargement of the EU and, second, we analyse how deeper integration between the EU and FSU contributes to this. The analysis is carried out with GTAP computable general equilibrium model. We find that there is a trade-off between the two roads of European integration arrangements. Eastern enlargement seems, even in its very deep form, be beneficial for all EU regions without causing substantial welfare losses outside the Union. The only regions that seem to lose somewhat are NAFTA and Japan. EU-CIS integration, on the other hand, has different impact. To be beneficial for CIS-countries free trade between the EU and CIS countries requires improved productivity in the latter, which may be due to better institutions or increased FDI, but still the agreement is not beneficial for large parts of the EU and the rest of the world.